Bill Of Lading Frauds -Three Typical Cases & Prevention

Bill of lading frauds to maritime fraud by means of backdated bills of lading and advance bills of lading. This fraud has become the most important form of maritime fraud at present.

Experienced international shippers know the amount of documentation required for a shipment to get customs clearance. Following the rules and regulations, no cargo can leave the port without proper paperwork.

While the amount of paperwork may seem daunting, each document serves a specific purpose and is designed to make the shipping process easier for sellers, carriers, and buyers.

Below we will explain the two key points “what is a bill of lading” and “what is a bill of lading fraudS“, and focus on the different types of bills of lading and their services.

Bill Of Lading Frauds -Three Typical Cases & Prevention

Table of Contents

What Is a Bill of Lading?

A bill of lading is a written statement detailing the type and quantity of goods to be shipped and the destination of the shipment. Outside of the shipping industry, you probably won’t encounter the word “store”. It is derived from the term “lade”. It’s an old-fashioned word that means loading cargo onto a ship or other type of carrier such as a truck.

What is a Bill of Lading?

What Purpose Does a Bill of Lading Serve?

A bill of lading is a legally binding document that helps sellers and freight forwarders to ensure smooth shipments across different regions by land and/or sea. All shipments, whether by sea or land, must be accompanied by an accurately filled, signed and dated bill of lading.

During your interaction with a carrier or freight forwarder, you may see a bill of lading called a bill of lading, bill of lading, or bill of lading. These are just shorter ways of saying the same thing.

Why Is a Bill of Lading Important?

Contract between carrier and consignee
A bill of lading is a contract of carriage (contract of carriage of goods) concluded between the carrier and the consignee for the import and export of goods by sea or land.

The bill of lading contains the conditions of carriage. Evidence that the carrier (the company that shipped the goods) has agreed to deliver the goods to the final destination as agreed between the buyer and the seller.

Delivery receipt
At origin, the bill of lading confirms that the seller has delivered the goods to the carrier in good condition. The freight forwarder confirms that the goods are received on his vessel in the best condition stipulated in the contract.

Ownership document
When the goods arrive at their destination, the bill of lading acts as title to the goods. The person receiving the goods must present an invoice to secure the release of the goods from the carrier. Think of BL as the key to a bank safe. Access to the content can only be obtained by presenting the bill of lading.

Other uses of BL:
Unique bill of lading number can be used to track shipments
Insurance claims must present a bill of lading
The bill of lading is the key to the letter of credit process

What is Bill Of Lading Frauds

Bill of lading fraud is a type of maritime fraud. With the increasing prosperity of international trade, the status of ocean transportation is becoming more and more important, and the subsequent cases of bill of lading fraud have also gradually increased. Bill of lading fraud has seriously affected the normal development of international trade activities. .

Bill of lading fraud refers to maritime fraud by means of backdated bills of lading and advance bills of lading. This fraud has become the most important form of maritime fraud.

A bill of lading is a document used to prove the contract of carriage of goods by sea and that the goods have been taken over or loaded by the carrier, and that the carrier guarantees the delivery of the goods. It has been used in shipping for hundreds of years and plays a huge role in international trade. However, because the bill of lading has many functions, there is a great possibility of fraud through various links.

In recent years, B/L fraud cases have occurred frequently, and the scope, variety and harm are shocking. Effectively combating the fraudulent activities of the bill of lading and further improving the bill of lading system itself has become an issue that cannot be ignored before all countries in the world.

Three Cases Of Bill Of Lading Frauds

1: Fake bills of lading for frauds

In 1977, the Greek freighter “LORD Baron”, after loading from Singapore, forged a bill of lading containing 20,000 tons of sugar to settle foreign exchange with the bank, and successfully withdrawn the funds from the bank. The Somali government was still waiting for the arrival of the 20,000 tons of sugar in its mind, but when the ship arrived at the port, it found that it was only 500 tons.

Later, the Greek government negotiated through the consulate, and the Somali government ignored it. In the end, due to international public opinion and diplomatic pressure, Somalia was forced to release the ship and its people. However, the shipowner has suffered great losses, and the captain of the ship is returning He died of a heart attack when he arrived in Greece, a disaster caused by international liars.

The deceived objects of such scams are mostly developing countries in the third world. The reasons are:
(1) They like to use bidding to get the lowest price when buying goods. In the sale and purchase contract, ignoring the credit investigation of the seller and rashly issuing a letter of credit to someone who has no “credit”. This makes it easy for scammers to take advantage of, and of course scammers can easily win the bid at the lowest price because they cost almost nothing.

(2) Most of the third world countries are not very familiar with international trade, and usually only use the three basic documents stipulated by the International Chamber of Commerce (ie, the seller’s invoice, the shippers Invoicce, the shipping bill of lading, and the insurance policy). The terms of payment are negotiated terms, which also give the swindlers an opportunity to take advantage.

For the above two points, being deceived can be completely avoided by:
(1) Carefully choose the seller and understand its reputation. The seller with the lowest bid may not be an ideal seller. Otherwise, if you buy goods from others at will, and only ask for a low price, the buyer may suffer losses.

(2) For the negotiation conditions issued by the letter of credit, in addition to the above three necessary basic documents, some verification documents that are not easy to be counterfeited must be attached, for example, issued by a well-known notary or a local chamber of commerce. The verification certificate may stipulate that only the local embassy can confirm that the goods have been loaded on the ship.

Bill of Exchange & Bill of Lading Fraud

2: Fraud and prevention of using time charter ships

This type of fraud mainly refers to the fact that international fraudsters only need to pay the first rent (usually 15 days or 30 days) to rent the ship by time charter, and at the same time, as the disponent owner, the By chartering the ship, the ship is sub-leased out, and the shipper is required to pay the freight in advance. After the goods are loaded and the captain issues the bill of lading with the freight paid, the second shipowner who receives the freight declares bankruptcy and bankruptcy, leaving only the original shipper. Shipowners face responsibilities under the bill of lading.

The original shipowner thus became the victim of this type of fraud, because the original shipowner’s bill of lading indicated that he had unshirkable responsibility for the carriage, even though the freight had been defrauded by the second shipowner. In this case, if the original owner wants to complete the scheduled voyage, he has to pay a lot of voyage costs, such as materials, fuel, wages, meals, discharge port charges, etc. and the first or second period of rent received by him. It is not enough to make up for this kind of expenses, but because of the existence of the owner’s bill of lading, he must complete the task of shipping, otherwise it is a breach of contract. The following are two international cases of time-charter fraud.

In 1960, the cargo ship “Marin star” owned by the Hong Kong shipowner was loaded to Osaka, Japan. When it arrived at the port of destination, the charterer company suddenly declared bankruptcy and the shipowner could no longer receive the rent, so he refused to sail to Osaka also threatened the consignee to pay the freight, otherwise the goods would be sold, and the consignee refused to pay any more. sell the goods.

After the consignee heard the news, Cheng immediately applied to the Hong Kong court for an injunction, and filed a lawsuit against the shipowner for compensation for all losses. As a result, the shipowner lost the lawsuit and lost a crushing defeat, so he jumped off the building and committed suicide.

In 1978, the Greek freighter “siskina” transported goods from Europe to Saudi Arabia. After the captain issued a prepaid freight bill of lading, the charterer company went bankrupt, and the shipowner refused to cross the Suez Canal, requiring the holder of the bill of lading to pay the freight.

Because the loaded goods are very expensive, the holder of the bill of lading has to pay the freight to the shipowner; the shipowner has already received enough money to complete the voyage, but the shipowner is still insatiable; the cargo is still unloaded in Cyprus, and the ship will return to the ship after returning. It sank on the way to docking in Greece. The holder of the bill of lading suffers a double loss.

Some of the main reasons for the frequent occurrence of such cases of time charter fraud in shipping are:

1:In recent years, the competition in the world shipping industry is very fierce, and the supply of the world charter market exceeds the demand

2: The competition among ship brokers in the world chartering market is also very fierce, so that some brokers will have bad credit for charterers, although they themselves have doubts about the charterers’ credit. Still recommended to shipowners as a first class charterer.

The best preventive measure against this type of fraud is for the shipowner to strengthen the investigation of the charterer’s credit. Specifically, you can go to the BIMCO (Baltic International Maritime conference) of the shipowners’ association to check whether the charterer has been complained in the past. Go to the bank. The renter’s recent financial situation, if the situation is not good, should refuse the concession, and should try not to conduct business transactions with the lessor of unknown origin, so as to avoid being trapped by the paper company that often changes its name.

It is worth mentioning that when it is a foregone conclusion that the shipowner has been deceived, the shipowner should remain rational as much as possible, and must not adopt the practice of coercing the shipper to pass on the loss, otherwise, the shipowner will be sued by the shipper and the new loser will suffer. Double loss of fame and fortune, the correct approach should be to learn lessons to complete the shipping.


3:The bill of lading has not yet arrived, and the fraud of defrauding the issuing bank for delivery guarantee

t is common for banks to issue delivery guarantees to customers in international trade, especially in ocean-going trade, because the goods often arrive at the destination before the bill of lading.

The bank usually guarantees to compensate the shipping company for all losses and expenses incurred due to the delivery of the goods without a bill of lading. When the customer’s credit is not good, the situation of falsely claiming the goods may occur, then the bank that issued the guarantee may suffer great losses. The following case is a good proof.

In 1990, a bank in Hong Kong opened a letter of credit in the amount of US$20,000 at the direction of its client, Kearney Limited.The shipment is a shipment of watches from Japan to Hong Kong, and split shipments are allowed.

Since the voyage from Japan to Hong Kong is very short, before the documents of the first batch of goods arrive at the issuing bank, the applicant requires the issuing bank to issue a delivery guarantee for the first batch of goods, and attach a corresponding indemnity amounting to 10,000 US dollars It is guaranteed that the applicant has a credit limit of USD 30,000 at the issuing bank, so the bank has signed a delivery guarantee for the shipping company, allowing the applicant to catch the goods.

One week later, the documents for the first batch of goods had not been received, and the applicant requested to issue a delivery guarantee for the second batch of goods valued at USD 10,000. In the near-ocean trade, it often takes a week for the mailed documents to arrive at the issuing bank, and the applicant’s credit limit has not been exceeded, so the issuing bank issued a second delivery guarantee.

A few days later, the issuing bank learned that its client Nick Limited had gone bankrupt and its directors were missing. After that, the issuing bank received the second batch of documents, but the amount was US$20,000, and the L/C could only have this batch of goods, and there was no second batch at all.

A month later, the shipping company that took away the second batch of goods on the basis of the issuing bank’s guarantee claimed that the issuing bank had embezzled the second batch of gemstone watches valued at US$20,000. It turned out that the customer under-reported the amount of the first batch of goods, and then falsely claimed the second batch of goods that were not his.

The main reason why this type of fraud cases surrounding the withdrawal of guarantees and guarantees is successful is that,

1: When the delivery guarantee is issued without receipt of the documents, the bank cannot know the details of the goods as the guarantee is issued after receiving the documents.

Important content such as the number of pieces of the goods, the shipping mark and the number of the bill of lading are often not very clear to the bank. All the bank knows is the approximate price and the general name of the product.

2: The fraudulent importer has a certain amount of compensation guarantee or trust receipt, which makes it easy for the issuing bank that issued the guarantee to create an illusion that the amount of the borrowed documents does not exceed the compensation guarantee amount.

3: Fraudsters often use the same name of the goods to cheat the ship, so as to take away other people’s goods.

Effective measures to prevent this type of fraud include:

1: The issuing bank clearly stipulates the shipping mark of the goods in the letter of credit when issuing the letter of credit, and prints the shipping mark of the goods on the delivery guarantee, and should add the letter of credit number. In this way, the applicant can only withdraw the goods specified in the letter of credit, and the issuing bank that issues the guarantee will not have a great risk.

2: The issuing bank can also obtain the detailed information of the goods through the negotiating bank to know whether the documents have been negotiated and whether the goods really exist, in order to avoid fraud.

3: The issuing bank may also require the importer to state unlimited liability in his indemnity guarantee or trust receipt, instead of only $10,000 as in the above case; The third party provides unlimited liability guarantee.

Bill Of Lading Frauds : How an Exporter was scammed by the Importer of US$700,000

Cause of Bill Of Lading Frauds

1: Reasons for bill of lading management

The laws of various countries do not have strict and uniform format requirements for bills of lading, and the management of blank bills of lading is generally not very strict. And the blank bill of lading is stolen, and the law does not stipulate any punishment measures, which to a certain extent condones the fraudulent act of the bill of lading

2: The bill of lading is more important than the goods

The bill of lading is therefore more valued than the goods due to the need to ensure the credit of the bill of lading in the document transaction

In order to ensure the credibility of the bill of lading in document transactions, the law generally encourages the parties to pay attention to the bill of lading rather than the goods themselves. In the sale, the buyer must pay the bill, the goods have been lost in transit, and the goods themselves are defective, etc. are not reasons for the buyer to refuse to pay.

If there is a problem with the goods themselves, even if it is stipulated that the rights of the holder of the bill of lading are not affected, only the intermediate holder of the bill of lading can benefit. The fact that the bill of lading is not heavy on the goods frustrates the enthusiasm of each link to prevent the bill of lading fraud, which objectively contributes to the occurrence of the bill of lading fraud.3: Internationality of bill of lading transportation

3: Internationality of bill of lading transportation

International shipping is based on the continents and oceans of the world, covering a wide range of regions. A trade or a shipment of goods should involve at least two countries, most of which involve more than two countries, and the resale trade will involve more countries.

The resulting bill of lading fraud cases will naturally involve two or more countries. In the above countries, and the perpetrators and victims of bill of lading fraud are often in different countries, the litigation must have foreign-related factors and involve legal conflicts.

Victims cross national borders, and the protection of their legitimate interests is greatly restricted, and some even have no possibility of exercising this right at all. Much of that has been exploited for the fact that maritime fraud has become so rampant in recent years.

The Dangers Of Bill Of Lading FraudS

It is because of the above reasons that bill of lading fraud occurs frequently and is very serious, which has constituted a threat to international trade, shipping and other related circles.

Because the fraud itself is difficult to prove, even if it is proved, the fraudster has often escaped, and the loss is difficult to recover. What is more serious is that the holder of the bill of lading often cannot get compensation from the insurer, because fraud is not a business risk generally covered by the insurer.

The reputation of the bill of lading is affected and the normal order of international trade is undermined. Because in international trade the buyer has the right to reject untrue bills of lading, but if the bill of lading is flawless on the surface, the buyer has no right to reject the documents due to defects in the goods, even if the seller ships defective goods or does not ship the goods at all ,

As long as the bill of lading ostensibly conforms to the contract, the buyer shall not reject the document unless the seller is fraudulent or the goods on board are fundamentally different from the contracted goods, that is, the buyer shall not use the general contract principle of “the first breaching party is the other party and has the right to rescind the contract” to oppose the sighting of the document The obligation to pay, it can be seen that the entire bill of lading system is designed to maintain the negotiability of the bill of lading.

The use of the bill of lading is based on the principle of good faith for all parties, and the liquidity of the bill of lading is the core of the bill of lading system. In order to establish the liquidity of the bill of lading, other criteria are sacrificed. The liquidity of the merchants who have struggled for centuries is in jeopardy under the blow of the bill of lading fraud, and the bill of lading system is also facing a severe test of life and death.

Advice on Bill of Lading Frauds

To formulate an international convention for prevention, there is no international convention that is mandatory for bill of lading fraud, so it is necessary to formulate an international convention to deal with bill of lading fraud in order to legally seek to maintain the international trade and shipping order. Such an international convention should contain]

  1. Definition of Bill of Lading Fraud, Offences of Bill of Lading Fraud, Jurisdiction and Extradition;
  2. Penalties for use and bill of lading fraud;
  3. Detailed review of all company information
  4. notices to organizations dealing with fraudulent bills of lading;
  5. Application of International Conventions.

Introduction to IMO

IMO – the International Maritime Organization – is the United Nations specialized agency with responsibility for the safety and security of shipping and the prevention of marine and atmospheric pollution by ships. IMO’s work supports the UN SDGs.​

Leave a Reply

Your email address will not be published.